My friend and editor Mr. Barton has decreed that I write about Gold, not about crypto currencies. After all, this is the Gold Standard Institute, not the Bitcoin Standard Institute… so, fair enough; I write about Gold. Nonetheless, it is inevitable that crypto currencies and so called ‘alt-coins’ get my attention. After all, ten baggers (thousand percent gains) are rare in the investment world; but ten baggers are but average in the crypto world.

Now before Mr. Barton gets out his cat’o nine tails and starts cracking it, please note that I am NOT writing this article about Bitcoin, Litecoin, CloudCoin, or any one of a thousand crypto currencies in existence; I am in fact writing about Gold in the twenty first century. Namely, I am writing about a digital Gold coin, specifically about Digix.

You see, Digix is ‘tokenizing’ Gold, thereby creating a cryptocurrency that provides stability for investors. If you have kept an eye on the crypto world, you know that stability is the exact opposite of what most crypto’s provide; namely, they provide extreme volatility and terrific speculative gains opportunities… and terrific lose your shirt opportunities.

Bitcoin and most crypto currencies are linked to exactly nothing… no more than pure Fiat currency is. The perceived value of Bitcoin is in the eye of the beholder; blockchain security, limited supply, and a way to avoid bank issued and bank controlled Fiat. Ask a Venezuelan if Bitcoin is not a life saver for them…

Now Digix is working towards a different end; each Digix ‘coin’ or better ‘token’ represents a real, physical asset; namely a gram of allocated Gold stored in a secure, private vault in Singapore. This concept reflects the Gold Standard, under which the world’s currencies were directly linked to Gold. That is, Digix represents a fully redeemable currency, something the world has not enjoyed for over a century. More, Digix represents a fully redeemable digital currency, something the world has never enjoyed.

The ramifications are awesome; Gold is making a comeback, going into circulation again… but this time in a digital, internet compatible format. In other words, Gold is entering the twenty-first century. Of course, this poses a few dilemmas, a few potential problems. Mainly a problem of trust; is a Digix token really supported 100% by physical Gold, or is it or will it degenerate to fractional reserve, like all G’man/bankster controlled currencies have degenerated?

Digix operates using blockchain technology; a public, virtually unhackable, distributed ledger system. That is, many private computer systems hold, duplicate, and confirm every Digix transaction. This is a huge builder of trust; unlike a bank issued Fiat that is subject to the whims of the bankster… and, unlike Bitcoin, there is no Digix ‘mining’. Mining Bitcoin involves solving a complex mathematical problem… a problem that grows ever harder as the number of Bitcoins in existence approaches the ultimate, designed limit.

This means that mining Bitcoin takes ever more expensive, ever more sophisticated, ever more power hungry special computer technology; this in turn means ever more concentration of the Bitcoin blockchain into the hands of a few powerful mining outfits. This clearly works against the purpose of Bitcoin, concentrating rather than distributing the blockchain. Digix has no such problem; the limit to the number of Digix tokens is not arbitrarily set… it is simply the number of Gold grams in existence. There is no Digix ‘mining’. Further, Digix uses the Etherium blockchain technology; newer, much faster than and even more secure than Bitcoin.

Now the question still remains; is Digix actually Gold, or at least is it ‘as good as Gold’? Of course not. Only the ‘yellow metal’ itself, preferably in the form of a minted coin of standard weight and fineness residing in the owner’s pocket or wallet is real Gold. A Digix token is simply a claim on Gold; but how good a claim?

Remember, even a Real Bill (Bill of Exchange) was simply a document, a claim on Gold… a claim that would mature into physical Gold coins within ninety days. The reason Real Bills worked ever so well was a question of trust; the Real Bills market self-corrected, threw out fake bills, only bills representing real consumer goods in high demand on their way to the consumer were supported by the Bill market. Remember, enormous quantities of Bills were in circulation before WWI, supporting multilateral trade; most Gold simply sat in vaults, gathering dust… until a breakdown in commerce caused Gold to move.

The bill market supported worldwide multilateral trade to such good effect that it took seventy years for world trade to recover to pre-war values after the destruction of the Bill market in WWI. So, with trust in the system, the Real Bill system worked very well thank you. Will Blockchain ensure trust in digital Gold? To the extent that there was trust in circulating Real Bills? Time will tell.

Nevertheless, a trustworthy system of Gold circulation is monetary Nirvana; Gold is the ultimate extinguisher of debt (unlike Fiat currencies that are borrowed into existence). Gold is the only financial asset that is not someone’s liability (except for Silver, Gold’s little brother).

There are several other ramifications; for example, Bitcoin and all other cryptos are (currently) valued in the USD… so, what happens when the USD sinks without a trace? Will Bitcoin then be valued in Bitcoin purchasing power? Will Bitcoin become the new numeraire? This is what you may call a ‘big ask’…

On the other hand, Digix is not measured in Dollars, Euros, or any other Fiat; it is measured in grams of Gold. While Fiat is undoubtedly heading to Zero value, going ‘off the board’, Gold is not. Today you can still buy Gold for Fiat; thus, you can buy Digix for Fiat… but once Fiat collapses, this will no longer be possible. On the other hand, you will still be able to trade Gold for Digix, and vice versa. The Dollar is not in the Digix loop… neither is Yuan, Yen, Euro, SDR’s, whatever…

Like many other crypto’s, Digix has two aspects; one is the Gold token itself, DGX; the other is the alt coin DGD that is like a share in the Digix outfit; this alt coin will offer appreciation and dividends based on the growth of DGX. For more info about all this, visit https://digix.global/

In the meantime, I as always, strongly suggest that you trade some Fiat for Gold and Silver while your Fiat still has perceived value.

The mainstream news media are starting to acknowledge that the days of the so called ‘Petro Dollar’ are ending. Western media typically considers the Eastern trend to bypass the Dollar and to trade in local currencies, like the Russian Ruble and the Chinese Yuan, as ‘an attack on Dollar hegemony’. Western media sees everything in terms of War.

In reality, the eastern powers are simply doing what they must to avoid western imperialism. Rather than deliberately attacking the petrodollar, eastern powers are simply dodging western sanctions and western economic pressure. Russia and China have made mutual deals to trade oil and gas, using their own currencies and bypassing the Dollar. Iran has joined this effort; now even Venezuela has joined.

Venezuela may be in financial turmoil, but it has the world’s largest untapped oil reserves… even larger than Saudi Arabia. No wonder the Washington based imperialists have Venezuela in their cross hairs; and no wonder Venezuela is now trading its resources for Yuan… and not Dollars.

Most telling however is the recent Chinese announcement that they will pay for their non-Russian oil imports in Yuan, not Dollars. This announcement also asserts that the Chinese will offer Gold payment for any oil supplier who is reluctant to hold Yuan. Furthermore, the Chinese also assert that they will not use Chinese Gold, but will buy Gold as needed in the world Gold market.

Since Venezuela has already dropped the Dollar, this announcement is clearly aimed at the Saudis. The Saudis have been the main pillar upholding the Petro-Dollar; but times are changing. The US is no longer the biggest buyer of Saudi crude; China is. Indeed, the US is a net energy exporter, in effect a competitor to Saudi, instead of being their best customer… and protector.

The Saudi-US Petro-Dollar regime rested on three legs; first, Saudi Arabia would only accept Dollars in payment for their oil. Second, they would recycle the preponderance of their Dollar for oil income into US treasuries. Third, in return the US would guarantee military protection for the Saudi regime.

These legs are collapsing. The US is no longer the big buyer of Saudi oil, and is no longer to be trusted as the big protector. US military power is waning, they have lost the war in Syria, and Iran is growing in influence. Is this the cause of Saudi turmoil… arrests of Takfiri clergy, arrests of billionaire princes on corruption charges, war on Yemen, war on Lebanon and perhaps even war on Iran? Is this why the Saudi king and his entourage visited Moscow for the first time in history?

Are the Saudis testing the resolve of the US to hold to their bargain to protect the Saudi monarchy at all cost? As always, time will tell. For now, the Chinese offer to buy oil for Yuan and offering Gold to support the sale seems like an offer that Saudi Arabia can’t refuse. The ramifications of this geopolitical shift are huge, and go deep. The obvious first step is the end of Dollar hegemony, the end of Dollar monopoly.

When Saudi Arabia starts to sell oil for Yuan, the fall of the Petro Dollar will be over. No wonder the Western media are calling the sales of oil for Yuan… or for any currency other than the Dollar… an act of ‘economic warfare’. But let us see where all this may lead, beyond Dollar dethronement.

Today the Yuan is pegged to the US Dollar; indeed, Trump is bitching about this peg, working to reign in what he calls ‘Yuan manipulation’ to the detriment of US industry. Now this is interesting; if the Yuan replaces the Petro Dollar, will China continue to peg their Yuan to the Dollar?

The Chinese have worked hard to have their currency accepted internationally; they just achieved a big part of their aims by having the Yuan accepted by the IMS as part of the SDR basket; Special Drawing Rights, so called… SDR’s represent a basket of currencies, including the Dollar, the Yen, the Euro, the Pound… and now the Yuan.

After all this long effort, will China continue to peg their currency to a Dollar that will plummet in purchasing power? Makes no sense… much more likely they will soon ‘float’ the Yuan, that is free it from dependence on the Dollar. So far all this is non-controversial; indeed, the West has been encouraging a ‘floating Yuan’… in the belief that it would benefit Western economies, so they hope.

Now is this the end of the line, the Yuan floats, and ‘business as usual’ continues? Or is this but phase two of Chinese strategy, (Phase one being the inclusion of the Yuan in the SDR basket). If it were the end of the line, why would the Chinese offer to redeem their Yuan in Gold? This Golden offer is definitely NOT business as usual. No other nation has made such an offer; indeed, the US is the last nation that promised Gold for their currency.

Before Nixon ‘closed the Gold window’ the US Dollar was redeemable (by central banks) while the Dollar itself was the world’s reserve currency. This agreement was adapted at Bretton Woods. Nixon broke the agreement, as the US Dollar was being printed way beyond the amount of Gold available in the US to meet the Bretton Woods promise of Gold redemption. The US reneged instead of honestly devaluing the Dollar… but what else would we expect from ‘Tricky Dick’ and the Washington deep state?

Why did China offer to pay Gold for Yuan? If simply to increase OPEC confidence, then fine. In such a case, if OPEC accepts Yuan payment, then Yuan would flow out to the world through oil purchases, and from there go wherever; perhaps some back to China for the purchase of manufactured goods… or even to the purchase of Chinese debt.

Kind of like the purchase of US treasury debt… but with the crucial difference that Chinese debt is used to build valuable infrastructure, rather than being used to fund wars, regime change, and big-time gambling in derivatives by US banks. But what if the oil sellers take up the Chinese offer to get Gold for their oil, as promised?

This could lead to amazing ramifications; the flow of oil into China is huge and growing; thus, Chinese demand for Gold would also grow. Remember, China is the largest Gold producer (mine output) in the world, but still buys Gold regularly on the world market; any demand for Gold to fund oil payments would much increase Chines Gold purchases. Gold demand would soar.

If Gold demand soars, how about Gold supply? Mine output is not about to soar, indeed is declining… so if the supply/demand equation has any meaning, the price of Gold would soar. But wait; today Gold is priced in Dollars, as oil is priced in Dollars; if the Yuan kicks the Dollar out of the oil trade, would oil still be priced in Dollars, or more logically be priced in Yuan?

If the Yuan kicks the Dollar out of the Gold trade, would Gold still be priced in Dollars… or more logically be priced in Yuan? If oil and Gold are priced in Yuan, is it likely that world trade would continue being priced in Dollars… especially if the Dollar starts losing value rapidly?

Will it all stop here; falling Dollar, floating Yuan… or will another step be taken by China to solidify the Yuan as a world reserve currency (phase three)? Before Nixon, the Dollar was ‘backed’ by Gold; is it likely that the Chinese will be satisfied with a ‘floating’ Yuan, with nothing to back it; or will they ‘peg’ the Yuan to Gold? As the Dollar was once ‘pegged’ to Gold?

Now this is not at all improbable, the coming world economic hegemon will see this as a positive step for Chinese interests. Backing the Yuan with Gold would guarantee Yuan stability… and the Chinese value stability above all. Not only that, the Chinese vision of Chinese interests is not the western vision of western interests; not a win/lose deal where the imperial hegemon wins and everyone else loses… but a vision of win/win for all participants.

Xi Jinping’s recent speech at the CPC spelled out exactly this vision; win/win, globalization economically with full respect for national sovereignty and cultural differences… in effect, the old winning American formula, now long lost; “live and let live; let’s make a deal”.

This is not a pipe dream by any means; remember, since Roosevelt in the 1930’s Americans were forbidden to hold Gold… while the US government confiscated the citizens’ Gold and then marked it up to the G’man’s benefit. Only after Nixon reneged on Dollar/Gold convertibility to central banks were Americans allowed to own Gold, and to trade Gold.

By contrast, the Chines government has been and is to this day encouraging Chinese citizens to buy and hold Gold. The Chinese have already agreed to trade Yuan for Gold. If they decide to peg the Yuan to Gold, and allow their own citizens to trade Yuan for Gold at a fixed price, then the Yuan has morphed into a redeemable currency… and the Chinese are back on a Gold standard!

Will the rest of the world follow? Will they have much choice? Not if the Chinese will only accept Gold or Gold redeemable Yuan for their manufactured products… and the Russians will only accept Gold or Gold redeemable Rubles for their grain, gas and oil. The dominoes are falling fast. I suggest that the value of Gold in purchasing power terms, as well as in Dollar price terms, has nowhere to go but up, big time.

Do you own Gold? If not, the time will come when the owners of Gold will not accept Dollars or any other Fiat currency for their Gold… so you must either own an oil well, and trade oil for Gold Yuan… or trade some Fiat paper for Gold before the window closes.

The pundits are constantly harping on inflation, hyperinflation, ‘money’ (actually currency) printing etc… With the underlying assumption that Gold price responds to inflation… and that inflation responds to excessive printing.

Now the connotation of this mindset is simple; belief in the quantity of money theory. That is, the belief that inflation is the result of ‘more money chasing fewer goods’. Mind you, at least this is a better belief system that the more commonly held belief that inflation simply is… and that Central Banks ‘fight’ inflation.

Indeed, those who hold the ‘printing > inflation’ meme are at least one step closer to the truth. But the reality of inflation is beyond the simple quantity theory; the theory only considers half the real cause of inflation. The first half is the quantity of money; the second half, the other factor leading to inflation and the proximate cause of hyperinflation, is the velocity of money.

Not often talked about, as TPTB do not want to admit that the ‘all powerful’ CB does not control inflation; that the CB can indeed control money supply, but has no power over velocity. A simple but fundamental way to see this is to consider GDP; the sum total of all financial transactions in one year in one state.

GDP is simply money supply multiplied by money velocity. Money supply is the actual stock of currency in the economy, more formally called M2. It can be compared to the stock of Gold, vs flow (mine output that adds to the stock). Growth of the money supply means new money borrowed into existence to increase the stock…

If the money supply of a state is for example one trillion Dollars, and the GDP is ten trillion, then by definition all the money must change hands ten times in one year. One trillion times ten equals ten trillion…just as surely as one plus one equals two.

But notice that if money supply doubles to two trillion, and velocity falls by half, the GDP will still be ten trillion; two trillion times five equals ten trillion. Clearly any claim that quantity of money rules GDP and thus controls inflation is false. The combination of quantity and velocity rule GDP, not quantity by itself.

Since inflation is not dependent on quantity, the price of Gold is not either; nevertheless, Gold price does respond to inflation. As the Purchasing Power of Fiat currency falls, the Fiat price of Gold rises. This is well proven by the historical record; inflation correlates with rising Gold price.

Now it seems logical to assume that if inflation leads to rising Gold prices, then deflation will lead to falling Gold prices. Unfortunately, it seems like this bit of logic is a frail reed; the historical record also shows that the PP of Gold does NOT fall in deflationary times. Do you wonder why not?

Recall that deflation is seen as a rise in the PP of currency; again, falsely attributed to a drop in the quantity of ‘money’ in circulation; but actually, velocity is just as important as in case of inflation. The reality is that if monetary velocity drops for any reason, deflation is the result.

In deflationary times, ‘Cash is King’… but then what is cash? Real money (Gold) is cash, Fiat notes are but promises. This fact drives reality; cash Gold, the fizz, the coin, is King; and its PP does not fall, but rather tends to rise… even faster than the PP of Fiat rises.

Now inflation is destructive even in the smallest measure, no matter that CB’s aim for ‘moderate’ inflation; this is like the ‘moderate’ Takfiris in Syria. The ‘moderates’ don’t chop heads; they slice heads off slowly, moderately.

The destruction of monetary value is like head chopping in the economic sphere. Holders of hard earned currency lose; the only question is how quickly. Even CB’s admit that rapid inflation is not desirable… but they are terrified of deflation, for good reason. Just like inflation is subject to positive feedback… potentially leading to hyperinflation and collapse… so is deflation subject to positive feedback.

CB’s are rightfully afraid of deflation, especially under Fiat regimes; look at the endless drag of deflation and the concomitant efforts of the Japanese authorities to fight deflation in the Japanese economy. Decades of lost time, constant currency printing, and still no desired inflation; Proof that quantity does not control inflation… or deflation.

As the PP of currency falls with inflation, if the fall is too fast then people start to notice that their currency is losing value; they start to spend it, get rid of it, trade it for something real that does not lose value… like Gold… before they lose even more value. This naturally increases money velocity, leading to even more inflation; a vicious circle that can quickly turn inflation into hyperinflation.

The very same feedback effect can occur with deflation; if the PP of currency is seen to be increasing rapidly, people will hang on to it as much as possible, waiting for even more value (even lower prices). The velocity of money falls, and the positive feedback kicks in.

A rapid deflation is called a crash or depression. There should be a word ‘hyperdeflation’ to describe this state of affairs. Runaway inflation is the mirror image of runaway deflation. Both are crises with similarly destructive effects.

On the other hand, a slow, steady ‘deflation’ is actually desirable, and natural under an unadulterated Gold standard. The cost of goods decreases as technology improves, thus the same quantity of money buys ever more goods. The rising PP of real money is (falsely) attributed to deflation… by the same PTB that praise ‘moderate’ inflation.

Notice that we are starting to approach the real price driver of Gold; the perceived risk of monetary crisis. Gold is a noble metal, not subject to corrosion either by the ravages of time… or the ravages of failed monetary policy. Gold simply is… and the price or perceived value of Gold rises as risk to the Fiat system rises.

Which fact leads us to an understanding of Gold valuation; Gold is seen as more valuable in times of rising economic risk. Gold is suddenly in the spotlight as the ultimate risk-free asset, the only monetary asset (except for Silver) with no counterparty risk.

Gold is the epitome of quality; not an IOU but real wealth, with thousands of years of historical evidence of its timeless value. By comparison, all other forms of money are inferior; the only question being how much inferior. When paper money is seen as being relatively stable, when the economy appears to be steady and growing, the premium accorded to Gold is reduced.

When paper is seen to be threatened, the economy appears to falter, suddenly Gold is back in favor; and the paper price of Gold grows. This is easy to see in times of inflation, the PP of paper is dropping visibly, and holding Gold is a no brainer. In deflationary times, the problem is lack of paper in circulation; this gives Gold a greater immediate monetary role.

Gold will move to help ease the cash shortage; this in turn increases the perceived value of Gold, even as the value of paper also increases. Gold is win win. Gold gains in inflationary times and in deflationary times.

The question is, are we now living in peaceful, low risk times… or not? If you are not sure, I suggest a quick read of internet news preferably not mainstream. De-dollarization is going on big time, the wars and war threats in the Middle East, in the Balkans, in the Ukraine, in Korea are festering. There is even an ongoing war on ‘cash’… on paper bank notes held by ordinary people.

The ‘price’ of Gold is climbing in recognition of the risks the world faces… climbing in spite of all efforts of G’men and banksters to counter the rise. No agency has the power to stop this rise, although interruptions and setbacks to the rising trend abound. Gold is on its way to assuming its real value, just as Fiat currencies are on their way to assuming their real value of zero.

Gold has risen in USD price from about $1,150 at the start of 2017 to about $1,300 today; an increase of around 13%, nearly 25% on an annualized basis. Furthermore, the ‘hot’ season for Gold prices is just around the corner.

Diwali buying by the Indians, Chinese buying for Chinese New Year, the Russians central bank adding tons of reserves, the Muslim world starting to buy with the newly minted Sharia Gold agreement… and major buying by the Turks, around 60 Tons just last month. With Eastern buying soaring, there is plenty of ‘love trade’ to drive the Fiat price of Gold even higher… yet Westerners are seemingly not buying. What gives?

Do Eastern buyers know something Westerners don’t? Have Western Gold ‘bugs’ been brainwashed by the banksters to the extent that Gold is totally out of favor, in spite of ‘facts on the ground’? With civic unrest on the rise, U.S. presidential political wars, more troops to Afghanistan, more lethal weapons to Ukraine, more military muscle flexing towards China and North Korea, more neocons in the White House, more terrorists to Europe, there is plenty of ‘fear trade’ incentive to drive the Fiat price of Gold even higher.

Nevertheless, Western Gold buyers are seemingly asleep; the SPDR fund reserve went under 800 Tons, the US Mint reports slack sales of Eagle and Buffalo coins, and Mr. Barton reports that he had to ‘ring the service bell’ at his favorite coin shop to attract a sales person. Really now, what gives?

Perhaps most Western buyers are ‘tapped out’… with barely enough currency to exchange for food, never mind for Gold or Silver… after all, near 50% of the US population is on food stamps… perhaps Gold coin dealers do not accept food vouchers in exchange for coins. Or perhaps most ‘discriminatory’ funds available to US citizens are being spent on guns and ammo… is this why S&W, Ruger, Colt shares are spiking?

Whatever the reasons, the reality is irrefutable. Gold sales in the West are stagnant. Wealth is flowing from West to East, as is civilized culture, as is manufacturing, as is military power, as is agriculture. Russia has reported record bumper crops in wheat, rye, and other grains not seen since the USSR broke up. Gold follows wealth; or wealth follows Gold. I suggest Gold and wealth are the same; both are leaving the West and are heading East.

Now let’s stay realistic; while the overall status of East vs. West is clear, that is no reason to believe that individuals must go with this flow. Every person, whether Western or Eastern, must make his or her decision regarding ownership of the monetary metals, regardless of the ‘big picture’.

As I write this article, Gold has broken a major long term downtrend in play since September 2011. The major funds were waiting for the trend line to be broken; and now are starting to allocate Gold to their portfolios. The SPDR fund has just announced holdings rebound to over 810 Tons. This (belated) Western fund buying simply adds to the momentum being developed by Gold… and Gold mining shares. The GDX is spiking, breaking $24.00 and seemingly heading higher.

As for the other monetary metal, namely Silver, it is also starting to move up vs the USD… In general, both Gold and Silver move together; sometimes one leads, sometimes the other… but they are joined at the hips. Many Silver bugs prefer Silver over Gold, as it tends to greater volatility, thus offering greater potential Fiat gains.

All this adds up to just one thing; the Golden opportunity is upon us. If you have not allocated Gold to your portfolio, it is time to do so. If you already hold some Gold, it’s time to add to your hoard. Such a positive alignment of fundamentals and technical is rare indeed. Far be it for me to try to push any fear or greed buttons… but such golden opportunities are ‘once in a lifetime’.

I strongly suggest you head out to your favorite coin shop, ring the bell, and sell some Fiat paper in exchange for real money; Gold or Silver. If you delay, there is likely to be a large queue developing soon enough; beat the Gold rush while you can. Remember the famous words; “There is no rush like a Gold rush”.

The normally calm and transparent waters of the Gold sphere are still rippling from the impact of Cryptos. While most understand that Cryptos are not money – not a replacement for Gold and/or silver – there remains a lingering sense that the two spheres do meet at some point.

Comparisons are tenuous. Gold, with its unique properties, is money, and Cryptos are a speculation – giddily exhilarating while they last but potentially ruinous when they come to a stop and turn to Crashtos.

Below’s article is from stalwart contributor Rudy Fritsch who is a Crypto enthusiast. I have received phone calls seeking an opinion on the subject from long-term monetary metals holders, so I know that interest is strong.

In the links below are two additional pieces on Cryptos from Monetary Metals. I suggest that if one reads one, then one should read all.

I remain uninterested, disinterested and disinclined to publish any further articles on the subject of Cryptos.

Philip Barton August 2017

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Bitcoin has risen to historic Dollar highs, but some pundits are claiming that this is just the ‘Madness of Crowds’… that Bitcoin is just another bubble, and that soon Bitcoin and other crypto’s will assume their intrinsic value, that is zero.

Indeed, some pundits… or are they perhaps trolls? Claim that ALL crypto currencies are but Ponzi schemes, nothing more. Well, I have recommended the purchase of crypto’s; have I led you astray?

Let’s make sure we are on the same page; exactly what is a Ponzi (scheme)? Wikipedia defines Ponzi scheme as follows. “A Ponzi scheme; (also a Ponzi game) is a fraudulent investment operation where the operator generates returns for older investors through revenue paid by new investors, rather than from legitimate business activities.”

So, do crypto’s belong in this category? Surely some do! There are over a thousand newly minted ‘flavors’ of ‘alt coins’ and no way can they all represent ‘legitimate business activities’… but perhaps some do? Remember, even tulip bulbs had a ‘legitimate business activity’… namely growing tulips.

Furthermore, all investments have the feature that early investors (in on the ground floor) make more profits than later ones. This is not a feature unique to Ponzi. Early investors in Amazon, or Intel, or any (successful) legit business made far more profits than later ones.

Major Banks, including the Russian Sherbank (now now, let’s not get into Russo-phobia ;-) are investigating block chain, the technology behind most crypto’s. The reason is simple; cost and time saving through a virtually impossible to hack method of conducting financial transactions.

If you consider financial transactions as legitimate business activity (and surely some are!) then you cannot say ‘all crypto’s are just Ponzi schemes’, any more than you can say that Intel or Amazon are Ponzi, just because the early birds make out like bandits.

Indeed, the second part of the Wiki definition is key; profits ‘from legitimate business activity’ define what is NOT Ponzi. Notice that many ‘legit’ businesses go bankrupt, total loss to investors; yet are not considered Ponzi because of the intent to make a legit business rather than an empty scheme or game that serves only to separate investors from their money.

Legit uses of crypto currencies are to ensure security in internet devices, to secure cloud data storage, to bypass greedy central banks… oops, this is controversial, yes? But think about the Central Bank of Zimbabwe and the trillion dollar Zimbabwe note… greed and insanity, and surely Ponzi?

How about the hundreds of other Fiat currencies that have been debased to zero value? Greenbacks, Reichmarks, Continentals, Lira, Forint, Peso… Fiat without end. Bitcoin and other crypto’s get around this. Indeed, in Africa (and now Venezuela) crypto’s are literally a life saver. Perhaps the pundits should be claiming that all Fiat currencies are Ponzi!

So, if the key is to find ‘legit business activity’ then that is what we need to do; find crypto’s that represent legit business. Now that may not be easy, no easier than distinguishing Intel or Amazon from Enron… early in the game that is. Much due diligence is needed… but the claim that ALL cryptos are Ponzi is no truer than the claim that all dot coms are Ponzi.

One thing is crystal clear; while there are thousands of crypto’s, there is only one Gold… and only one Silver. Owning either one avoids any possibility of Ponzi… and any possibility of bankruptcy. Neither monetary metal is about to lose all its value; on the other hand, neither one offers the spectacular returns possible in crypto speculation.

Finally, there is one more vital issue that is usually missed; the very word asset in English is ambiguous. A real asset is not the same as a ‘paper’ asset. A Gold coin and a Silver bar are real assets. The difference is crucial; a real asset has no counterparty holding the same asset as a liability, thus no counter party risk.

Paper assets, on the other hand, all have just that; a risk that the counter party fails to keep their promise. Bonds, stocks, certificates etc. all have counterparty risk; that is, they are but promises. A bond is an asset in one hand, but a liability in the other hand. Once netted out, the resulting value of such paper assets is zero.

By contrast, Gold and Silver have no offsetting liability; they are real assets, and netting out Gold debt will leave the Gold untouched… real assets cannot disappear like paper assets can and regularly do. The real asset merely changes ownership. We need to keep in mind that under our Fiat system, bank notes (Dollars, Euros, etc.) are paper assets; they are assets in our hands, but they are liabilities on the books of the Banks of Issue (Central banks).

All Fiat currency is borrowed into existence. The Fiat notes (liabilities) issued by banks are balanced by the debt notes (assets) on their balance sheets. Thus, Fiat can and does disappear regularly. Treasury debt is funded by Fiat borrowed from the CB; the CB creates Fiat notes from thin air to buy treasury debt. Paying back the debt pushes the Fiat notes back into thin air.

So how about crypto’s? Are they also ‘paper assets’ by this definition? NO! Bitcoin does not have a counterparty. Bitcoin simply exists on its own. There is no liability balancing the asset; Bitcoins are not borrowed into existence.

This is a seldom heard aspect of the crypto story… and one reason some people compare crypto’s to precious metals; no liability to balance the asset… just a real asset, like Gold or Silver. Of course, value (purchasing power) is another issue; the value of Gold and Silver are historically proven and have held steady for thousands of years, while the value of Bit coin is subject to wild swings on a daily basis… but this is what makes Bitcoin a great speculation. It is by no means an indication that Bitcoin will disappear like all Fiat currencies do disappear in their own good time.

At the end of the day, I do recommend buying some crypto’s. On the other hand, crypto’s are no substitute for holding Gold and Silver; at best crypto currencies complement the strengths of the monetary metals.